Dear Penny,
I’m happily married (25 years) and retired for medical reasons (I’m 58). My husband makes good money. We are meeting all of our basic needs, but his retirement is severely underfunded.
We had to dig out of debt recently and are down to one zero-interest credit card we still owe about $18,000 on. Our home will be paid off in about four years, and I send $300 extra each month.
My husband is very set on getting an expensive new car that costs about $60,000. I can’t talk him out of it, though I’ve tried! He’s OK with working until he’s 70 and would use his old car as the down payment and put down no additional cash.
I’m worried if something happens to him before the new car is paid off. If he passes away and I’m not a co-signer, will that protect me? I don’t want the car, nor do I want the hassle of trying to sell it should he pass. I’m also worried about if he doesn’t pass but needs a long-term facility or nursing home.
How do I protect myself for my future? He has several health concerns, but so do I.
-Mrs. M.
Dear Mrs. M.,
Your husband may be approaching retirement age, but he needs to grow up already. A $60,000 car is something you buy when your retirement accounts are plush and you have little if any debt. But I know I’m preaching to the choir.
To answer your question: The impact on you depends largely on what state you live in. If you live in one of the 41 states that follow common-law property rules, you wouldn’t be responsible for the debt as long as your name isn’t on the loan. But in the other nine states that follow community property rules — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — each spouse is equally liable for any debt incurred during the marriage.
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In a common-law state, if your husband died owing money on the car, both the car and the loan would become part of his estate. The estate — specifically, whoever is the estate’s executor — would be responsible for making payments out of your husband’s assets during probate.
Should you inherit the car along with your husband’s other property, you could simply contact the lender and surrender it. The lender could still file a claim against the estate. But since your name won’t be on the loan, you wouldn’t be sued over the debt. Your credit score wouldn’t be affected. You may be able to do the same thing if your husband becomes disabled. Doing so would hurt his credit, but it wouldn’t affect yours.
But if you live in a community property state, the lender could sue you for the debt even if you don’t co-sign. If your husband doesn’t have adequate life insurance and disability insurance that would allow you to cover car payments, there’s a real risk to your credit and finances.
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Regardless of where you live, this purchase is a terrible idea. Your husband may think his plan to work until 70 fixes everything. But the reality is, a lot of people are forced to retire earlier than they planned because of medical issues or a job loss. That prospect is daunting, especially given that you say his retirement plan is severely underfunded. The money that your husband would be spending on a car payment needs to go toward catching up on retirement savings.
I know you’ve tried to persuade your husband not to make this purchase. But I wonder if he may be more willing to listen to a neutral third party. It might be worth hiring a fee-only financial planner to assess your retirement planning and setting a specific savings goal. Perhaps your husband will see how much harder reaching that target would be with substantial car payments.
If that doesn’t work, maybe the two of you could reach a compromise. At the very least, could he hold off on buying this car until you’ve paid off the credit card? That 0% interest rate isn’t going to last forever. Paying off the balance before it starts accruing interest is a must in this case. Given that new car prices continue to soar, your husband may also save money if he can be a little patient.
I’m afraid there’s nothing you can do if your husband is truly determined to make this ridiculous purchase. But hopefully, he’ll come around and see that no car is worth putting your retirements at risk.
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Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [emailprotected].
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